Two top home builders here look to expand

Mar 13, 2010 — St. Louis Post-Dispatch

Tim Bryant

Mar. 12, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- Pulte Homes (NYSE:PHM) and McBride and Son, the big guns in St. Louis-area home building, are bulking up on new developments as the economy slowly recovers.

Both companies are acquiring lots that banks had taken back from smaller builders who were overwhelmed by the two-year recession.

"What looks different this year, certainly, is that the traffic coming into our communities is substantial," said Mike VanPamel, St. Louis division president for Michigan-based Pulte. "The number of new prospects is about double from a year ago. That's very, very encouraging."

McBride, the local builder that has long led the St. Louis market, said it ended the first month of the year with 189 home sales, a January record.

"We feel strongly that the worst is well behind us," said John Eilermann Jr., McBride's chief executive.

About half of Pulte's recent land purchases are of foreclosed building lots. VanPamel said the company also is looking at subdivisions that stalled after other builders put in streets, sewers and other infrastructure. He said Pulte's "very strong cash position" allowed it to buy hundreds of lots as smaller builders suffered foreclosures or failure as the recession persisted.

Eilermann said McBride in the last year acquired 20 residential projects -- with a total of about 1,300 lots -- begun by other builders in St. Louis or St. Charles counties but on which banks had foreclosed. Since May, McBride has built and sold more than 400 homes on those lots.

McBride projects 1,207 home closings this year, compared with 1,175 last year. Eilermann said that over the next two years the company expects to increase its 57 percent market share in St. Louis.

Pulte doesn't disclose sales projections, VanPamel said. But he said he believes the number of new St. Louis-area homes will rise as much as 15 percent this year.

And yet even that increase would barely bring the number of new single-family home permits to the 2008 figure of 3,349, compared with 2,899 in 2009, according to the Home Builders Association of Greater St. Louis. The number of permits in 2008 was a 45 percent plunge from the 6,178 permits issued in 2007, as the housing boom turned to bust in St. Louis and across the nation.

Home builder association figures show that the 212 single-family house permits issued in January represented the area's seventh consecutive monthly increase.

VanPamel said the growing ability of people to sell their current homes, continued low mortgage rates and new home prices "at an all-time low" are a switch from the tough times of the past two years. Lumber prices might rise this year, but construction material prices overall are down, labor costs are steady and people are looking to buy, he added.

MORE PEOPLE LOOKING

"The biggest positive is the number of lookers," he said. "The first-time homebuyer segment is moving along. The main driver is people seeing the value out there in a new home."

Builders said they hope the expiration April 30 of the federal tax credit for first-time homebuyers will not cause sales to drop. VanPamel said the first-time market is "moving along" but that the high-end market -- generally for homes costing more than $500,000 -- remains "vulnerable."

Kevin Cottrell, chief economist at Kelsey Cottrell Realty Group, said Pulte and McBride will continue to grow, at least in part because they have the financial strength to negotiate good deals with banks on foreclosed lots. Left behind were some smaller builders that "were victims of the hubris that came from believing that housing prices would continue to rise," he said.

The mixture of too many unsold lots, commitments on additional land and accumulations of homes built in market segments with weak and falling prices devoured cash and left some builders unable to refinance projects.

Small builders' wounds are now big builders' salve.

"McBride is being offered projects at pricing and costs well below what other builders were previously in the same projects for," Cottrell said. "The issue now is the price adjustment in existing projects that McBride finishes is a challenge for current homeowners."

In some developments, new McBride homes are priced $75,000 to $100,000 less than those put up by the developments' previous builder, Cottrell said.

SURVIVING 'HORRIBLE TIMES'

Eilermann said McBride is sensitive to existing residents' worries about their homes' value.

He said McBride has bought some foreclosed lots "at 100 cents on the dollar" and others for "dramatically less," sometimes for 10 percent of what was owed the lender. "Bricks and sticks" needed to build homes have fixed costs but the market determines land prices, Eilermann said.

"A lot is worth something only if you can put a home on it," he added.

Eilermann said he hopes the improving housing market means that no more St. Louis-area builders will fail. At least five mid-sized builders have gone out of business since early 2008.

"It's been the worst housing implosion in history," Eilermann said. "Some good builders got caught in horrible times."

Newstex ID: KRTB-0187-42858073